Ca. Ajay Khandelwal
Here we will explain the provisions of Interest u/s 234B and 234C which relates to late payment or non-payment of Advance Tax.
Interest u/s 234C
Firstly we will discuss interest u/s 234C as it is charged first. This interest is for deferment or delay in payment of Advance Tax. If any installment of advance tax is not paid or short paid, then interest on balance amount of that installment will be charged @1% simple interest per month or part of the month, upto the date of next installment. So, interest on first 3 installments will be charged for 3 months and for 4th installment will be charged for 1 month.
Calculation of Interest u/s 234C
For example, if Advance Tax liability of a person is say Rs. 20000/-. So, he should have been paid 15% upto 15th June, 45% upto 15th September, 75% upto 15th December and 100% upto 15th March. So, here interest calculation will be as below :
I installment : 20000 x 15% = 3000, interest thereon 3000 x 1% x 3 month = 90
II installment : 20000 x 45% = 9000, interest thereon 9000 x 1% x 3 month = 270
III installment : 20000 x 75% = 15000, interest thereon 15000 x 1% x 3 month = 450
IV installment : 20000 x 100% = 20000, interest thereon 20000 x 1% x 1 month = 200
Total Interest u/s 234C = 90 +270 + 450 + 200 = 1010
Interest u/s 234B
Interest u/s 234B is charged for non-payment of Advance Tax. So, it is charged on Advance Tax remaining unpaid upto 31st March. It is charged from 1st April upto the month of actual payment thereof @1% simple interest. But, here any part of the month is considered as full month. So, if the remaining amount of advance tax is paid say on 1st July, then interest will be charged for full 4 months, i.e., from April to July.
Calculation of Interest u/s 234B
For example, suppose advance tax liability of a person is, say, Rs. 20000/- and he has paid Rs. 10000/- upto 31st March and now he is paying balance amount on 1st July. So, here interest will be calculated @ 1% p.m. on Rs. 10000/- for 4 months, i.e., 10000 x 1% x 4 = 400/-.
One thing important to note is that if 90% or more of Advance Tax has been paid upto 31st March, then interest u/s 234B will not be charged.
Round off of Tax
For the purpose of Interest u/s 234B and 234C, the amount on which interest is being calculated will be rounded off to lower 100. So, if advance tax liability of a person is Rs. 20190/- and nothing is paid upto 31st March, interest u/s 234B will be calculated on Rs. 20100/-.
Relaxation to Senior Citizens and 44AD or 44ADA assessees
The provisions of Advance Tax do not apply to senior citizens who are not having business or profession income. Therefore, above interest provisions do not apply for such senior citizens. Also, assessees covered u/s 44AD or 44ADA are not required to pay first 3 installments. Therefore, the provisions will apply from 4th installment.
One time relaxation in interest
Due to Covid Pandemic, a small relaxation was given by govt. It says that if due date of payment of advance tax was falling between 20.03.2020 to 29.06.2020 and the amount was paid upto 30.06.2020, then interest rate for calculation of interest will be 0.75% instead of 1%.